When considering setting up a business in Europe, the Czech Republic is an attractive destination due to its strong economy, favorable tax regime, and central location. Among the various business entities available in the Czech Republic, the limited liability company (S.R.O.) is the most common choice for foreign investors and entrepreneurs.
The Czech LLC (SRO – Společnost s ručením omezeným)
The limited liability company, known in Czech as SRO (Společnost s ručením omezeným), is the most popular business entity among small and medium-sized businesses in the Czech Republic. Over 90% of all businesses in the country are structured as SROs, making it the most common type of business entity in the Czech Republic.
The Czech LLC (S.R.O.) provides limited liability for its owners. This means that the personal assets of the shareholders are protected in the event of the company experiencing financial difficulties. This makes it an attractive option for entrepreneurs and foreign investors who want to limit their financial exposure while starting or expanding a business in the Czech Republic.
The Czech LLC (S.R.O.) exists independently of its shareholders and can be set up by legal entities, natural persons, or associations. It’s a flexible business entity that offers ownership transfer rights, making it easy for business owners to sell or transfer their ownership rights.
Key features of the Limited Liability Company (SRO – Společnost s ručením omezeným) in the Czech Republic
- Limited liability: the company provides limited liability for its owners. This means that the personal assets of the shareholders are protected in the event of the company experiencing financial difficulties.
- Minimum share capital: the minimum share capital required to set up an S.R.O. is CZK 1, but many businesses opt for a higher share capital to increase their credibility and financial stability.
- Management structure: the company can have one or more executive directors responsible for day-to-day operations, or a supervisory and executive board structure can be implemented to separate management and control functions.
- Foreign ownership: foreign investors can own 100% of the company and there are no restrictions on foreign investment in the Czech Republic.
- Financial reporting: it must keep accurate accounting records and file annual financial statements with the Czech Commercial Register. These statements must comply with Czech accounting standards.
- Transfer of ownership: shares can be easily transferred to facilitate changes in ownership.
In summary, the S.R.O. offers a flexible structure, limited liability protection, and easy incorporation, making it an attractive business entity for small to medium-sized businesses in the Czech Republic.
Incorporation procedure of the Czech Limited Liability Company (Společnost s ručením omezeným – S.R.O.)
Setting up a Limited Liability Company (LLC) in the Czech Republic can be a relatively straightforward process that begins with choosing a unique company name, followed by the following steps:
- Determine the share capital: the minimum share capital required for an LLC in the Czech Republic is CZK 1, but most companies choose to have a higher share capital. The share capital must be placed in a bank account which is under the company’s name.
- Draft the Articles of Association: when forming a Czech LLC (S.R.O.), drafting the company’s Articles of Association is a crucial measure. This legal document will define essential information about the company, including its business purpose, registered office address, share capital, and details of shareholders and executive directors. It is essential that the Articles of Association are accurately prepared, as they will determine the company’s structure and operations going forward. The Articles of Association must be notarized by a Czech notary public.
- Register with the Czech Commercial Register: once all the necessary documents are available, the application can then be submitted to the Czech Commercial Register. The application should include the Articles of Association, proof of share capital deposit, and executive director information.
- Register for taxes: the company owner must also register for tax purposes with the Czech tax authorities and obtain a tax identification number.
- Acquire licenses and permits: when setting up the company, it’s important to obtain licenses and permits, but the once acquired will depend on the nature of the business. The type of license required will vary based on the activity of the business. In cases where no professional competence is required, obtaining a trade license can be a quick and straightforward process.
- Comply with ongoing obligations: once the company is set up, the owner/s will need to comply with ongoing obligations such as filing annual tax returns, holding annual general meetings, and maintaining accurate accounting records.
Taxation of Czech LLCs
Entrepreneurs who are considering starting a business in the Czech Republic should be aware of the taxation regime that comes with setting up a Czech LLC.
The Czech Republic has a favorable tax regime for limited liability companies (LLCs), which is one reason why they are a popular choice for entrepreneurs and foreign investors.
An S.R.O. is subject to corporate income tax on its profits, which is currently set at a flat rate of 19%. In addition, there is a value-added tax (VAT) of 21% on goods and services provided in the Czech Republic. Personal income tax is also applicable to the employees and executive directors of the LLC, which is progressive, with rates varying from 15-32% based on income.
Apart from these, there are various tax incentives available for businesses in the Czech Republic. For instance, the broad network of double taxation treaties which the Czech Republic has with other countries can help reduce the tax burden for companies doing business internationally, and tax credits are also available for research and development.
Do you want to set up a Czech S.R.O.? – At Damalion, we have a team of experts who can guide you through the entire process and help you establish your LLC efficiently and effectively. To setup your Czech SRO company, contact your Damalion experts today.
